Will Rent Control Stall Inglewood Investment?

Inglewood has become a new favored multifamily investment market in Los Angeles. The Hollywood Park project, which includes a Rams football stadium, has attracted investors for the last two years, but a new rent stabilization measure in Inglewood could dampen multifamily investment activity along with new multifamily development. The rent stabilization measure is only temporary, and caps rental increases at 5%. However, it will likely lead to a more permanent solution.

Long waits for permitting approvals, restrictive zoning, parking space requirements, impact fees, all of these barriers to construction increase costs to develop new apartments,” Greg Brown, SVP of government affairs for the National Apartment Association, tells GlobeSt.com. “The implementation of rent control further discourages investment in housing across most of the income spectrum.”

As new investment slows in the market, low-income renters or renters living in older apartment product will likely be the most affected, according to Brown. “Rent control harms the low-income renters it is intended to help. A majority of the housing in California’s 43rd congressional district was built before 1979, with a significant portion built in 1959,” he says. “These units require lots of maintenance and capital improvements that will be stifled by rent control, or they could be taken out of the market entirely.”

Brown predicts that the rent control measure will have the opposite effect, actually driving rents up. This is because development activity will slow and existing units will choose to stay in their units longer, increasing competition for rent-controlled apartments. “Rent control only increases competition for affordable units. The benefits are tied to the unit and not the resident,” he says. “Anyone can live in a rent-controlled unit, so it should be expected that many individuals who don’t need a rent-controlled unit will be able to access one.”

Current resident, however, will see the benefits of rent control. “Current residents in older buildings will see the benefits of rent control, but those benefits will be offset by the costs of the policy—rising rents and shrinking supply due to owners leaving the rental market,” says Brown. “A 2018 Stanford study showed this occurred in San Francisco from 1994 to 2010 and similar results should be expected.” Inglewood is most recent market in the Los Angeles area to implement rent stabilization, following Glendale and unincorporated areas of Los Angeles County.